Letter to DCED

7/31/2019 Letter to DCED

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Gary Lewis

[address redacted]

28 July 2012

Secretary C. Alan Walker

Department of Community & Economic Development

400 North Street

4th Floor

Harrisburg, PA 17120-0225

RE: City of Scranton

Revised Recovery Plan

Secretary Walker:

I am writing to express my concern about the second revision to Scrantons Recovery Plan (The Plan).

This Plan, as you are aware, is required if the city wishes to obtain more than $26,000,000 to cover the

2012 deficit of $18,400,000, inclusive of the States recent offer of $2,000,000 in no-interest loans.

It is my understanding that The Plan calls for tax increases of:

12% in 2013, 8% in 2014, 10% in 2015,

The Plan also calls for cuts to departmental budgets. However, current staffing levels will remain

unchanged and wages will increase under the recently approved Collective Bargaining Agreements (TheCB As).

The Plan fails to adequately address the drivers of the citys projected budget deficit of nearly

$25,000,000, comprised of:

$10,000,000 structural deficit exclusive of debt service and salary increases due to The CBAs; $8,168,536.25 of debt service, exclusive of costs related to additional borrowing; $1,400,000 in new costs associated with The CBAs required to settle the recent arbitration

award;

Any unpaid bills rolled forward from prior year, which exceed $6,000,000 in 2012.The tax increase for 2013 proposed by The Plan will produce a $1,700,000 increase in budgeted real

estate taxes (see Exhibit 1), but with approximately 1 in 9 homeowners unable to meet their current tax

liability, this will likely lead to a $1,400,000 increase in actual tax receipts.

The Plan also requires cuts to Non-Employee Departmental Expenditures (Targeted Expenditures). In

2012, total Targeted Expenditures were $12,755,180 (see Exhibit 2). Even a 20% cut to Targeted

Expenditures would result in no more than $2,500,000 in cost savings. Such a cut would likely prove


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unsustainable as Targeted Expenditures include the actual operating costs of the city - items such as

Professional Services, Fuel Bills, Utilities, Vehicle and Property Maintenance, etc.

These two items unsustainable budget cuts and unsupportable tax increases form the crux of The

Plan. Together, they reduce the 2013 budget deficit by no more than $3,900,000.

With a projected 2013 budget deficit under The Plan of at least $21,100,000, I expect the city to be shut

out of the capital market (see Exhibit 3, a copy of the letter I recently submitted to M&T Bank). The

administrations recent actions indicate they may be aware of the citys inability to borrow. Mayor

Christ Doherty has attempted to borrow more than one-third of the total pension funds at an incredibly

high interest rate of 8% (see Exhibit 4).

The citys only option short of recurring annual State subsidies, which will exceed $100,000,000 by

2018 is to file for Chapter 9 Bankruptcy. A properly managed bankruptcy filing will give the city the

opportunity to reduce costs by reorganizing debt and restructuring The CBAs. As evidenced by Stockton,

CA, a city can continue to operate while in bankruptcy.

I urge you to reject this doomed attempt to kick the can down the road and take a stand for

overburdened taxpayers. Refuse to accept this recovery plan and cooperate with a Chapter 9 filing for

the City of Scranton.

If you would like to discuss my analysis, please feel free to contact me by email ([email protected])

or by phone at 570-80-6813.

Regards,

Gary Lewis

CC: Governor Tom Corbett
mailto:[email protected]


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2012 Budgeted Real Estate Tax Revenue: 13,970,012.98$

12% Increase: 1,676,401.56$

2013 Budgeted Real Estate Tax Revenue: 15,646,414.54$

Current Realization Rate (per PEL): 87%

Anticipated 2013 Realization Rate: 84%

Anticipated increase in Tax Collections, 2013: 1,408,177.31$

Total Operating Expenses - 2012: 85,331,121.49$

Non-Departmental Operating Expenses - 2012: 25,449,938.00$

Total Employee Compensation - 2012: 47,126,003.35$

Total Departmental Operating Expenses - 2012: 12,755,180.14$

Exhibit 1: Calculation of Projected Increase in Real Estate Taxes

Exhibit 2: Calculation of Non-Employee Departmental Expenditures


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Gary Lewis

[Address redacted]

July 16, 2012

Mr. Bob Wilmers, Chairman/CEO

c/o M&T Bank

One M&T Plaza

Buffalo, NY 14203-2399

RE: City of Scranton, PA

Proposed Purchase of City Debt

Material Event Notice

Dear Mr. Wilmers,

As you are certainly aware, the city of Scranton, PA is in the midst of a major financial crisis. With city

coffers running empty, the State of Pennsylvania has offered the city short term financing and the

Administration is currently working to secure more than $26,000,000 in funding to cover the 2012

I strongly urge you to refrain from lending, or participating in the procurement of, these funds. Not only

will the terms of any new financing be particularly onerous, but this funding merely addresses the 2012

deficit and does nothing to address the issues the city will face in 2013, including:

A structural deficit of nearly $10,000,000, exclusive of debt service,

Debt Service of $8,168,536.35, exclusive of new debt issuance,

An additional $1,400,000 will be due to the local public employee unions due to the recentsettlement of a court-ordered arbitration award, and,

Unpaid bills rolled forward from the prior year, which exceeded $6,000,000 in 2012.

Altogether, I believe the city will have a deficit approaching $25,000,000 in 2013.

Additionally, the recent Recovery Plan proposed by the Mayor, and rejected by City Council, called for

than $5,000,000. It was later discovered thatthe Sewer Authority already owns the asset, a fact the

Authority in 2007 for on-going maintenance costs paid by the City and won the case. Perhaps the next

iteration of the recovery plan will offer to sell the Brooklyn Bridge in an attempt to balance the budget.

on homeowners. The simple fact is that residents

of Scranton, who currently have a household income less than $36,000 per year according to

Bloomberg, cannot support additional tax hikes. Between a 3.4% local wage tax, a 3.07% State wage tax

and an average real estate tax bill approaching $2,000, the residents of this city are heavily burdened, a


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Lackawanna County nor the Commonwealth guaranty the City tax levy.

Sacramento and San Bernardino, both of which filed for Chapter 9 Bankruptcy protection in the last few

weeks. I believe the city is also a prime candidate for a bankruptcy filing.

Lending this money to Scranton is not only an endorsement of its very weak financial management; it

represents a less than investment grade risk to bondholders. Notwithstanding any credit rating agency

finances should be included in any offering document distributed to

investors in any future borrowing. Should the bank fail to comply with this request, I will file a material

event notice with the Municipal Securities Rulemaking Board on account of material misstatement and

omission under rules 10b-5 and 15c2-12 of the Securities Exchange Act of 1934.

nancial condition, please feel free to reach out. You

e.blogspot.com. It has also been documented by

the New York Times, CNNMoney and The Bond Buyer. I have made repeated attempts to discuss this

information with the Administration and City Council over the last two month, but have made no

progress.

As the lender of last resort, you are in the unique

a message to the Administration. Such action is not unprecedented. In 1975, Manufacturers Hanover

refused to renew approximately $2,000,000,000 of notes for New York City for fear of inability to repay

when due. New York City was shut out of the credit markets for years until it cleaned up its financial

management. Scranton needs to learn that same lesson.

Kind Regards,

Gary Lewis

CC: Mr. Michael Pinto, Vice Chairman

Mr. Mark Czarnecki, President

Ms. Marie King, Vice President

Governor Tom Corbett


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Documents

Letter to DCED